The rupee depreciated 26 paise to 86.57 against the US dollar in early trade on Tuesday, due to unabated dollar demand from oil importers and weak risk appetite.

Forex traders said the rupee continued to face pressure due to sustained foreign fund outflows and the strength of the American currency in the overseas market.

Moreover, the upcoming Union Budget will play a crucial role in shaping market sentiment and the rupee's trajectory, as expectations are high for favourable measures aimed at rekindling foreign investments.

At the interbank foreign exchange, the rupee opened at 86.53 then fell further to 86.57 against the American currency, registering a decline of 26 paise over its previous close.

On Monday, the rupee depreciated 9 paise to close at 86.31 against the US dollar.

The Indian rupee fell this morning as risk aversion was the name of the game, said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

"FPIs continued their selling of Indian equities while buying dollars taking rupee from 86.20 to 86.45. On Tuesday also it looks like they will continue to buy US dollars and ensure a range of 86.20/50," Bhansali said.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was at 107.86, higher by 0.49 per cent.

Brent crude, the global oil benchmark, was quoted 0.06 per cent higher at $77.13 per barrel in futures trade.

"Brent oil prices steadied after logging in losses last week due to Trump Jitters concerns over increased supplies as well as doubts over long-term demand," Bhansali added.

In the domestic equity market, the 30-share BSE Sensex was trading 332.00 points or 0.44 per cent up at 75,698.17 in morning trade, while Nifty was higher by 63.65 points or 0.28 per cent to 22,892.80.

Foreign Institutional Investors (FIIs) offloaded ₹5,015.46 crore in the capital markets on net basis on Monday, according to exchange data.

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